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2013 Consumer Products Industry Outlook

Consumer products companies face a raft of challenges in the coming year. These include, but are not limited to, absorbing and capitalizing on rapid technology advances, revitalizing legacy operating models, and adapting to profitably serve diverse consumers across evolving retail channels and geographies.

Every so often, conventional wisdom does not properly guide decisions about the future. Strategic issues facing consumer product (CP) companies today require new approaches in fast-evolving marketplaces. Pat Conroy, vice chairman and U.S. Consumer Products leader for Deloitte LLP, shares his perspectives on the year ahead, along with some tips that can help your company manage and innovate through the current climate of uncertainty.

What issues face the consumer product industry in 2013?

Conroy: Consumer product companies are struggling to drive profitable growth in an uncertain global economic environment. They face myriad issues, some longstanding and others arising more recently due to rapidly evolving technologies and shifting consumer trends:

— Impact of technology and proliferation of data: Rapid advances in technology are changing how consumers shop. Mobile applications, social networks and e-commerce empower shoppers with instantaneous information, influencing buying decisions. Organizations are able to collect consumer data through mobile interactions, purchasing decisions and social interactions, allowing CP companies to be more targeted and personalized with their product and marketing strategies.¹ Yet CP companies will be challenged to make sense of the massive amounts of data being collected—to drive effective product and marketing strategies for each consumer group while addressing the cyber risks associated with managing personal information.

— Legacy operating models: Outdated business operations are affecting how consumer product companies manage their businesses. Many organizations are optimized to serve the traditional grocery and supermarket channel, for instance, yet demographic shifts and changing consumer preferences have reduced the importance of these channels. Furthermore, many companies are organized based on more traditional product development and marketing channels, without adapting to the technologies that are shaping the future consumer. Continued marketplace success requires consumer product companies to evaluate their operating structures, becoming more nimble and responsive to shifts in the environment.

— Growth of nontraditional channels: Consumer shopping habits are driving changes in the retail marketplace and increasing cross-channel conflict. The treasure hunt atmosphere in warehouse clubs attracts affluent consumers, while more budget-conscious consumers are taking notice of the broader assortments and improved food offerings in the multi-price point dollar channel.² Consumers are also purchasing more products via e-commerce from online-only and brick-and-mortar retailers, as well as directly from consumer product companies.

— Multidimensional innovation: Concurrently increasing revenue, margin and market share is an age-old issue for CP companies. When combined with commodity price volatility that appears to be enduring, and a persistent need for product differentiation, the challenge for CP companies is to develop new products that are less costly to produce and more sustainable or healthier.

— Serving multiple price points, while building strong household brands and a global presence: Consumer product companies are challenged with serving an increasingly price-aware consumer across a range of incomes with products at multiple price points, while building and expanding their footprints across regions with different tastes and price points. Providing and positioning products to serve this spectrum of consumer needs and wallets challenges profitability. Some premium products have performed well recently, but margins remain under pressure as lower income consumers find more value in economy brands and private labels.

What are some steps consumer product companies can take to manage through the current climate of economic uncertainty?

— Capitalizing on the growth of nontraditional formats: Success in the dollar channel has varied depending on the ability to formulate a clear strategy. Successful companies have closely partnered with dollar retailers so their inbound shipments are very efficient, comprising a limited assortment for multiple product categories and resulting in relatively consistent and predictable demand. Yet, other companies have struggled with a limited assortment of product categories and volume, making it difficult to efficiently keep dollar store shelves stocked.⁴ CP companies are deploying direct-to-consumer capabilities to meet changing consumer shopping habits and provide specific products not broadly available in traditional retail outlets.

— Getting simple and streamlining efforts: Increasingly, consumer product companies are identifying ways to improve margins while simultaneously addressing issues such as sustainability and health preferences with reduced packaging and fewer ingredients. Research and development (R&D) investment is shifting toward initiatives that bundle multiple innovations to improve product appeal and reduce cost.

— Streamlining the organization structure: Leading consumer product companies are evaluating their company structures to improve flexibility and responsiveness, create leaner operations, evolve their product and marketing strategies, and break down layers of bureaucracy to respond to market demands. Some consumer product companies are splitting up to target high-growth markets and consumer segments, while others are looking at vertical integration to manage costs and create more agility in pricing.

— Customizing portfolios to shifting consumer segments: The continued divergence in consumer needs is leading many companies to evaluate their product portfolios. Beyond major operational changes, companies are adapting product portfolios that address value-oriented needs of budget-stretched shoppers while also creating more premium offerings that are less susceptible to margin pressure associated with commodity volatility.

— Looking for growth across all consumer touch points: As competition continues to be fierce, companies should think about ways to expand “must have” brands across all consumer touch points. They should look horizontally as well as vertically and identify synergies that may help target their consumer base in new areas. Starbucks and Disney represent companies that have had success in achieving their vision of how to connect a consumer brand and experience across retail, travel and leisure.

What are high-performing companies doing to foster innovation and growth?

Many leading companies are adapting their product portfolio and business operation strategies to profitably serve both affluent and low-income consumers across evolving retail channels and geographies. Some high-performing brands are also altering their mix of marketing spend toward digital technologies, sometimes with the help of data analytics to more successfully (and cost effectively) engage with various consumer groups. For nontraditional but fast-growing channels like e-commerce, dollar and club, consumer product companies are increasingly creating channel and retailer-specific products and packaging. Some leaders are embracing simplification and sustainability to meet evolving consumer preferences. Finally, cloud-based technologies have the potential to help companies simplify infrastructure and rapidly grow in new markets.5

About Deloitte Insights

Deloitte Insights for CIOs couples broad business insights with deep technical knowledge to help executives drive business and technology strategy, support business transformation, and enhance growth and productivity. Through fact-based research, technology perspectives and analyses, case studies and more, Deloitte Insights for CIOs informs the essential conversations in global, technology-led organizations. Learn more.

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